GDP Growth – Lies, Damned Lies and Population Growth

GDP Growth – Lies, Damned Lies and Population Growth Several years ago, the Australian public was told that high population growth (therefore high immigration) was necessary to fill skill gaps in the Australian economy. Such skill gaps, we were told, were due to the skills shortfalls of the mining sector, given the minerals investment and export boom at the time. In reality, the vast majority of skilled migrants settled in our major metropolitan centers and had nothing to do with the mining sector. Why a continued large scale immigration program with no specific geographical focus was required to satisfy the skill needs of the mining sector in remote locations was never satisfactorily explained. In addition, a large proportion of skilled migrants did not have skills that were in short supply in Australia. In fact, many migrants had occupations that were in serious oversupply. Now that the mineral resources boom has tapered off, Australian government immigration settings are still for historically very high net overseas migration (NOM) levels for the next 40 years or so. Now, we are told that, because the mining boom has abated greater reliance must be made upon the non-mining economy to maintain economic prosperity. This means maintaining high NOM rates. The economic reality underpinning government spin (political lies) is that the Australian economy is characterized by a crippling structural imbalance. Apart from selling mineral resources and agricultural produce, the Australian economy runs large trade deficits on nearly all elaborately transformed goods that we associate with a First World lifestyle. The hard reality is that, over the past 30 to 40 years, the Australian economy has been left behind in the race to develop diversified and sophisticated, high-value added export industries. So when the mining boom tapered off, and it had finally become clear that neo-liberal economic policy would not yield a broader, more sophisticated economy, the Reserve Bank and the Australian Treasury saw no option but to rely even more heavily upon population growth and city building to ensure that the levels of Gross Domestic Product growth that had been aspired to could be met. Australian society was set on a population growth treadmill because of the outright ineptitude and lack of vision of previous Australian governments (both Labor and Liberal), and Australian business elites-- their inability to undertake serious structural adjustment to ensure the modernization of the Australian economy, not just consumption patterns. This includes the Hawke/Keating Labor governments of the 1980s and early 1990s, which are now being lionized by present day left and right-wing Labor flunkies in the run up to the 2015 Labor Party National Conference. The degree to which Australian governments have become reliant upon population growth as a substitute for the development of the real economy, but nevertheless as a basis for GDP growth, was made clear in the 2010 Inter-generational Report (IGR). The 2010 IGR assumed that, between 2010 and 2050, GDP growth would average 2.7 per cent per annum. In contemplating the contribution of labour force Participation, Productivity growth and Population to its GDP growth aspiration, the Treasury considered that labour productivity growth would continue at 1.6 per cent per annum. It expected labour force participation to decline. This meant that the gap between the aspiration of 2.7 per cent and 1.6 per cent would need to be made up by population growth; it therefore set an average target of net overseas migration of 180,000 per annum. Let’s make this clear: the Australian government sets immigration targets with GDP growth targets in mind. The more that labour force participation and productivity growth fail to deliver, the greater the reliance upon population growth to meet overall economic growth targets – even though there may be no direct link to achieving any structural correction in the Australian economy. It is notable that the 2014 IGR does not spell out the expected contribution of population to GDP growth as explicitly as in the 2010 IGR. Such reliance is potentially embarrassing; it is a virtual admission of economic failure. The 2014 IGR does show, however, that the population component is not expected to contribute anything much to GDP growth per capita, even though it is expected to add to overall GDP growth. While the Treasury does expect that continued high population growth will make the economic pie bigger, it is not expected, on average, to increase individual wealth. Nevertheless, Australian governments seek to maintain overall GDP growth at all costs, even when it leads to chronic infrastructure shortfall, declining urban amenity, sky-rocketing housing prices, unbridled foreign ownership of essential resources and almost inevitably, in the longer-term, a sharp downward adjustment in living standards. In the meantime, massive amounts of wealth are channeled into the unproductive economy – residential and other construction activity, which will have no bearing upon the underlying structural economic imbalance. Such reliance upon population growth to achieve overall economic growth targets, in the absence of real advancements in productivity and technological sophistication, is little more than a national ‘ponzi scheme’. All the while, we continue to listen to the delusionary rhetoric of our national ‘leaders’ that Australia is the ‘envy of the world’. How long will it be before people are bailing out of Australia on mass as it becomes the Argentina of the mid-Twenty-first Century? Val Morgan